By ruling of 14.10,2020 (ref. no. II R 7/18) the German Federal Fiscal Court (BFH) rendered a decision of significant relevance for real estate valuation in inheritance and gift tax law. The BFH clarifies that a qualified market value appraisal can prove the lower fair market value of a property pursuant to § 198 BewG even if the valuer used the financial mathematics method for the valuation. The German Real Estate Valuation Ordinance (ImmoWertV) does not preclude this approach.

Particularly with regard to heritable building right properties (Erbbaugrundstücke) the ruling opens up important options for owners and heirs to successfully challenge excessive tax property values.

The facts of the case

The claimant had inherited several heritable building right properties (Erbbaugrundstücke) that were predominantly developed with terraced houses and, in part, with a workshop building.

The tax office valued the properties in accordance with the provisions of the German Valuation Act (Bewertungsgesetz) and, among other things, applied

• property interest rates (Liegenschaftszinssätze) of 3% and 6.5% respectively,
• an estimated ground rent (Erbbauzins), as well as
• the statutory valuation parameters

as a basis.

The heir considered these values to be significantly too high and submitted, during the appeal proceedings, an appraisal report by a publicly appointed and sworn valuer who determined the market value using a financial mathematics method and arrived at significantly lower property values.

Tax office and fiscal court rejected the appraisal report

Both the tax office and, later, the fiscal court did not follow the appraisal report.

The reasoning given was, in particular, that

• the financial mathematics method was unsuitable for evidence pursuant to § 198 BewG,
• the decisive factor was rather the comparable values of the expert committee (Gutachterausschuss),
• the valuation only reflected a theoretical lower limit of the property value.

The fiscal court held the view that the ImmoWertV did not permit such a valuation method.

The decision of the BFH

The Federal Fiscal Court expressly overturned this view; according to the court, the following applies:

The Real Estate Valuation Ordinance does specifically not exclude the financial mathematics method.

Rather, the decisive factors are,

1. whether the appraisal report was prepared in accordance with the principles of the ImmoWertV,
2. whether the chosen valuation method is appropriately substantiated, and
3. whether the appraisal report as a whole comprehensibly and plausibly proves the fair market value.

The BFH also emphasizes that Section 198 of the German Valuation Act (BewG) there is no priority given to the sales comparison approach knows. While the Valuation Act (Bewertungsgesetz) prescribes certain standardized procedures for typified tax valuation, the valuer may, when proving a lower fair market value, choose whichever recognized method best reflects the actual market value.

Why the ruling is so important

The decision illustrates a key difference between the statutory standard valuation performed by the tax office and the individual proof of market value after Section 198 of the German Valuation Act (BewG). The tax office works with typified valuation procedures. In particular for leasehold (Erbbaurecht) properties, these often produce values that bear little relation to the prices actually achievable on the market. A qualified market value appraisal report may deviate from this if the valuer comprehensibly explains why a different valuation approach better reflects the actual market.

Particularly for properties with

• leasehold rights (Erbbaurechte),
• unusual usage rights,
• special encumbrances,
• atypical market conditions, or
• a lack of suitable comparable sale prices

this can have significant tax implications.

What does this mean for taxpayers?

An appraisal report is not unsuitable simplybecause it deviates from the valuation approaches used by the tax office or the expert committees (Gutachterausschuss).

What matters instead is

1. that it was prepared by a qualified valuer,
2. that the valuation complies with the requirements of the ImmoWertV,
3. that all assumptions are comprehensibly justified, and
4. that the market value is conclusively derived.

A methodologically sound appraisal report can therefore prove a significantly lower property value and thus substantially reduce inheritance or gift tax.

Classification within current BFH case law

While, in its ruling of 11 March 2026 (II R 6/23) , the BFH strengthened the significance of comparable prices determined by expert committees (Gutachterausschuss) for standard tax valuation, the ruling in II R 7/18 remains of central importance. Even though comparable prices are generally decisive, the taxpayer can rebut the determined property value for tax purposes Section 198 of the German Valuation Act (BewG) by means of a qualified market value appraisal report. The precondition is that the appraisal report is professionally convincing and methodologically sound.

Conclusion

The BFH ruling II R 7/18 confirms an important principle of valuation law. It is not the valuation method preferred by the tax office that is decisive, but rather the one that most reliably reflects the actual market value.

For owners, heirs, and gift recipients, this means that a qualified market value appraisal remains the most effective tool for successfully rebutting excessive property values before the tax authorities – particularly in complex valuation cases such as leasehold properties.

Practical note: Anyone who receives a notice of assessment for inheritance or gift tax purposes should have it reviewed at an early stage to determine whether the property value assessed by the tax office corresponds to the actual market value. A qualified market value appraisal report can – as the BFH has once again confirmed – lead to significant tax savings.